Procedure:

Explain that the purpose of this lesson is to investigate how clear definition of property rights helps people engage in trade.

For example, suppose Anna owns two sandwiches. She is only hungry for one, but she wants $1 to buy a drink. Brad has $4 and he wants a sandwich and a drink. The cafeteria charges $1 for drinks and $3.50 for a sandwich. Brad offers Anna $2 for a sand­wich. Does she take the deal?

How much did each gain?

If Anna had negotiated, how much could she have charged Brad for the sandwich?

Explain that because they both had property rights, Anna and Brad could trade for sandwiches and money. The exact terms of the trade could have varied from $1–$3 for the sandwich, depending on how well each person negotiated.

Similar trades can occur with water, provided there are clearly defined, transferable property rights. Trade involving water can have beneficial effects for the environment.

Distribute Handout #1 and instruct students to read the scenario. Then display Visual #1 and review it with the students.

Distribute Handout # 2 and help the students fill in the first entry. Instruct them to complete the chart in groups.

Announce that a new set of rules governing property rights is now in effect. Display Visual #2 on the overhead and discuss the components of the new water-rights rules:

How is this set of rules the same as/different from those you ex­amined earlier?

Do these rules make it easier or more difficult to reach a solution that both sides can support?

Using this set of rules, devise a solution that both sides will likely support. (If students fail to consider the possibility of the farmers and outfitters creating a market for water, offer a hint by reading aloud the story below.)

Because this is a small town and everyone knows everyone else, no one wants a feud. There have been problems in the past between the outfitters and the farmers, but everyone stayed calm and worked it out. When lots of pheasants died during a hard winter some time back, the outfitters had a tough year and the farmers were mad because hunters were traipsing all over their fields and harassing their dogs and cattle. The farm­ers threatened to allow no hunting on their land. Faced with this threat, the outfitters offered to pay the farmers for access and to guarantee that they would send a guide with each group of hunters to make them behave. When that worked, someone came up with the bright idea of asking the farmers not to plow and mow their fields to the edges, thus creating zones of pro­tective cover for birds. Since this would have meant a loss of crops and income to the farmers, the hunters and outfitters offered to pay the farmers $10.00 per pheasant shot. Now preserving pheasants was worth as much to the farmer as the little bit of crop lost.

When all the student groups have reached a decision, offer the following challenge: “I’m going put a prize on your table. I will give you a few minutes to reconsider your solution to the water problem, and then I will try to think of a better solution. If I cannot find a better solution, you get to keep the prize. If I can find a better solution, I will take back the prize. Display Visual #3. Explain that a “better” solution is one that:

makes the farmers better off without hurting the fishermen, or

makes the anglers better off without hurting the farmers, or

makes both the farmers and anglers better off.

After students have had time to reconsider their solution, ask: “How did you solve the water dispute? Were both sides in the dis­pute satisfied?”

Closure: Which feature(s) of property rights rules made an amicable solu­tion possible?

Look back at your property rights chart. Property rights were clearly defined under many of the legal institutions, but there was still conflict over water. Why isn’t clear definition enough to allow win-win settlement of dis­putes?

Assessment: Distribute Handout #4. Briefly discuss the scenario. Divide the students into groups and give each group a set of the clues from Handout #5. Direct them to distribute the clues so that each student has at least one in hand. Ask the students to solve the mystery with the most appro­priate clues and to propose a new solution.